Is Transferring an IRA into an Immediate Annuity Right for Me?

ira transfer

By Hersh Stern - October 24, 2013

In preparation for retirement, you may have rolled over accumulated monies in an employer sponsored plans into an individual retirement account (IRA). Or, you have diligently saved for decades in an IRA. A popular income generation strategy at retirement would be to transfer these IRA funds into an IRA annuity. Like any investment strategy, this idea comes with advantages and disadvantages and it is important to consider both prior to initiating an IRA transfer (or IRA rollover).

IRA Overview

Before we discuss transferring your IRA into an immediate annuity, let’s revisit the benefits of an IRA. One of the primary reasons investors make IRAs a part of their portfolios is to capitalize on the benefit of tax deferral. Funds placed into an IRA accumulate tax-free which enables the funds to grow quicker than if the same funds were invested in a non-qualified, taxable account. Upon withdrawal, IRA funds are taxed as ordinary income.

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IRA Annuities- Retirement Insurance

Many investors consider IRA annuities as a form of retirement insurance. Why? Immediate annuities are designed to provide you with a guaranteed income stream. This income stream, if designed correctly, can provide funds sufficient to cover your fixed household expenses during retirement. Fixed household expenses often include rent or mortgage payments, insurance, food, and utilities; those basic costs that must be paid on a month to month basis.

Inflation Protection

Many immediate annuities offer an optional inflation rider. When added to a base annuity contract, the ongoing income stream will be adjusted by a fixed percentage annually (i.e. 3%, 4%, or 5%). Inflation riders can protect your annuity’s ongoing purchasing power.

What Should You Consider Before Rolling Over your IRA into an Immediate Annuity?

As you consider whether rolling an IRA into an annuity makes sense for your financial situation, take into account the irrevocable nature of the immediate annuity. Once you pay your premium, you are giving up future access to those principal dollars.


California Department of Insurance

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